The Reserve Bank of New Zealand (RBNZ) will hike rates by another 25bp on Wednesday and may upgrade the rate projections to signal six more back-to-back rate increases in 2022, in the view of economists at ING. They expect any FX impact to be overshadowed by geopolitics.

25bp hike, with many more to come

“We think that an upgrade in the rate path projections by the RBNZ, to signal six hikes (after the February one) in 2022, can help consolidate the market’s expectations on the Bank’s tightening plans and offer some short-term support to the NZD.”

“A highly volatile risk environment due to the geopolitical tensions in Ukraine and unstable equity markets means that any post-RBNZ reaction may be quickly overshadowed by external drivers.”

“Even if our expectations for a ‘hawkish hike’ (25bp) by the RBNZ prove correct, the market’s reluctance to price out geopolitical risk could result in NZD/USD struggling to move above 0.6750 this week, with risks skewed towards a pullback towards 0.6650 in the coming days.”